Beijing, Oct 29 - China is not likely to agree to subsidise exports of excess sugar as a way to support prices and help loss-making mills, but it will keeping buying some of the surplus for state reserves, industry officials said on Wednesday.
The China Sugar Association has proposed that Beijing subsidise exports of 500,000 tonnes of white sugar, aiming to cut stockpiles that have pressured domestic prices, left mills in teh red and threatened farmers' income.
The export proposal came after the government was unable to absorb all the surplus, projected at 2.4 million tonnes by Guangxi Sugar Exchange, after two years of record output.
"The government has not made any decision on the proposal," Liu Hande, vice chairman of the China Sugar Association, told Reuters.
"So far we do not have any potential buyers or detailed plans as how to export. I don't think we can manage any exports," added Liu.
Another trader with a state-owned trading house said exporting was an unrealistic option since the government would not offer large subsidies.
The inferior quality of Chinese white sugar means it can only be exported as raw sugar instead of more expensive refined sugar to the international market.
Traders said China would need to offer subsidies of about $100 per tonne to make the price competitive in the international market, based on New York raw sugar futures at about 11 cents per lb.
The Association also proposed that the government use the excess sugar to produce fuel ethanol, but the association's Liu said Beijing did not support the idea.
China has been a net sugar importer so far this year.. Many deals were signed earlier in the year when the market expected lower output from Guangxi, the largest producing area, after cane fields were damaged by unusually severe winter weather. Replanting later offset the damage.
But traders said Beijing was likely to purchase less than 500,000 tonnes for state reserves, adding it would be difficult for the government to purchase more than that because government storage warehouses were almost full, from purchases of last year's crop and with sugar imported from Cuba under a bilateral deal.
Contamination of dairy products by the chemical melamine has also reduced demand for sugar, which is used in many dairy products, including powdered milk, yoghurt and candy that contains milk, traders said.
The Guangxi exchange forecast only 5 percent growth in domestic sugar consumption, slower than the annual double-digit growth seen in previous years.